Enterprise applications represent some 40 percent to 60 percent of corporate IT budgets, but have yet to be significantly outsourced, according to a London Business School report released yesterday and commissioned by Fujitsu.

In part, say the report's authors, that's because many companies still have to get to grips with 'best practice' when it comes to handing enterprise applications over to third-party providers, which differs subtly but fundamentally from approaches commonly used in other areas of outsourcing: "The results of our survey show that while most of the lessons from other forms of IT outsourcing apply, applications outsourcing must be treated with extra are. Unlike infrastructure - a data center, for example - business applications are inextricably tied to the way a business functions."

As a result, while there are significant cost savings to be achieved, the costs of getting application outsourcing wrong can be very high, too - and potentially damaging to an organisation's ability to do business, according to John Hanley, managing director of the applications division at Fujitsu UK and Ireland

Chief among the study’s findings and recommendations are the following points:

• Competitive advantage drives outsourcing direction and decision-making – decision-makers must have a clear understanding about what constitutes ‘competitive advantage’ for their business and be able to segment their applications portfolio accordingly.

• CIOs who are successful at application outsourcing have a deep business knowledge about their organisations, good board relationships and develop business performance (not just IT- or finance-based) measures for assessing outcomes.

• The ability to manage internal stakeholders effectively is essential – in particular, collaboration between heads of IT and heads of finance is vital. The finance department needs to be involved as early as possible in the outsourcing discussion.

• Strike a balance in the type of applications outsourced – failure to do so will affect flexibility and agility.

• Enable continuous management – the way application outsourcing is implemented and managed must be continuously reviewed, and should be adapted as the business landscape changes.

“Whilst these findings are by no means an exhaustive list, the recommendations – and the corresponding report – should provide guidance and insight to CIOs planning to review their approach to application outsourcing," said Hanley. A full copy can be download here.

In April, Fujitsu UK & Ireland appointed Hanley head of its applications division and announced an ambitious three-year plan to double revenues from this part of its business by 2013.